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Tuesday, August 30, 2005

Jude Wanniski (1936-2005)

There are two things you should know about the man who coined the phrase "supply-side economics." First, he was a pretty decent amateur economist. His book The Way The World Works adroitly illustrates the principle of the Laffer Curve, the theory that tax rates have a point of diminishing returns. WorldNetDaily, which carried his column, cites the book's most significant chapter in its obituary:

At the heart of the book is his 1978 discovery of the cause of the 1929 stock market crash, a discovery that vindicates the classical economics, which had been blamed for the crash and the Great Depression.

The book successfully illustrates how the stock market responded to Congressional action over the Smoot-Hawley tariff bill; the stock market's fortunes were inversely related to the changing odds of the bill's passage. A 1999 National Center for Policy Analysis report, commemorating the 70th anniversary of the Crash, agrees with this point:

One of the most hotly debated causes of the crash is the Smoot-Hawley tariff. Protectionists like Alfred Eckes and Pat Buchanan argue that it could not have affected the market because the law was not passed until 1930, long after the crash. Although this is true, much of the legislative activity took place in 1929. As economist Alan Reynolds convincingly demonstrated in National Review (November 9, 1979), actions favoring passage of the tariff bill correlate quite well with declines in the stock market during 1929, culminating on October 29.

The reason why the market crashed well in advance of the tariff becoming law is because markets are forward-looking, and quickly capitalize any policy that will impact on future profits. Fred Kent, Director of the Bankers' Trust Company, confirms that this is what happened in 1929. In a speech on November 11, 1929, Kent said, "As soon as dealers in securities, who were constantly on the watch for indications as to business conditions, realized that this feeling of uneasiness (on account of the tariff bill) was spreading throughout industry, they began selling stocks."

But Wanniski does not demonstrate the relationship between the Crash and the Depression. NCPA sees Smoot-Hawley as having exacerbated a decline that was already in process without its help, placing the primary blame for the Depression on Fed monetary policy. Read the whole thing.

His friendship with Farrakhan (and his occasional preoccupation with Zionists in the US government) attracted accusations of anti-semitism. In 1998 he arranged an interview between the Nation of Islam leader and Jeffrey Goldberg, who at the time wrote for the Jewish weekly, The Forward. The interview was never officially published, but Wanniski posted a complete three-part transcript here, here, and here. In a truly bizarre moment, Wanniski recommended that Louis Farrakhan be enlisted to negotiate Daniel Pearl's release. How he could conclude that anyone could reason with a terrorist guerilla force is a mystery.